Minimum Wage

National Survey of State Laws
COPYRIGHT 2008 Cengage Learning

20. Minimum Wage

The federal government has established a minimum wage, or the least dollar amount that may be paid hourly workers, that applies to all workers in all fifty states who are engaged in interstate commerce or the production of goods for interstate commerce (and closely allied enterprises) or are employed by an enterprise engaged in interstate commerce or the production of goods for commerce. Businesses engaged in “interstate commerce” are defined as those with potential to come in contact with interstate travelers or consumers in other states.

Thus the federal minimum wage does not apply to all occupations. Domestic workers are not covered in many situations; fishermen, employees of certain small newspapers, babysitters, and agricultural seasonal workers in small family farms are some of the common exemptions from the federal minimum wage law. Others who are exempt include those in seasonal employment, such as at amusement parks or seasonal recreation centers, and in “exempt” occupations, such as managers, salesmen, or administrators who are not paid on an hourly basis. Further, if a local business does not qualify as participating in interstate commerce, it, too, would be exempt. These exempt occupations are covered by state minimum wage laws that can be higher or lower than the federal minimum wage which is now $5.15 per hour. However, if the state minimum wage is higher than the federal minimum wage and the employee is subject to both state and federal law, the higher rate will apply.

Subminimum wages are hourly rates below the established minimum wage that may be paid for a limited time to learners, apprentices, messengers, student workers, and those employed in occupations not ordinarily given to full-time workers. The subminimum wage permits businesses to be able to continue to hire certain types of workers in certain nontraditional, “convenience” occupations.

Overall, there is little variation among states in regard to the minimum wage. Since the federal government has established a national minimum wage covering virtually all occupations, most states have simply adopted that wage as their standard, though a few have established higher rates and a few lower. In the last few years, six states that had minimum wages set lower than the federal provision have revised theirs to match the federal rate, and seven have bettered the federal rate. The most dramatic rise in the minimum wage is seen in Georgia, which recently raised its rate to $5.15 from $3.25! Surprisingly, one state (Kansas) still has a rate that is less than the federal rate. Five states have taken no action at all, perhaps determining that the market is the best regulator of wages. That is, if the wage is too low, the employer will either get no applicants or ones with no experience and no skills. Generally, the higher the wage, the better the applicant pool. However, there are circumstances in which workers may be taken advantage of either out of desperation or ignorance. This is precisely why the minimum wage exists.

Table 20: Minimum Wage

State

Code Section

Minimum Wage Per Hour

Subminimum Wage Per Hour

FEDERAL

Federal Labor Standards Act, 29 USC §206

$5.15 (eff. 9/1/99); applies to all employees covered by FLSA in 50 states, territories, and possessions except for American Samoa; standard applies to employees, not specifically exempt, who are: (1) engaged in interstate commerce; (2) engaged in production of goods for commerce; or (3) employed in an enterprise engaged in commerce or production of goods for commerce

$4.25; for up to 90 days of training for individuals under 20 years of age

Department of Labor Commissioner to set rate of statutory minimum for learners and/or apprentices; individuals whose earning capacity is impaired due to physical or mental defect, age, or injury; individuals in work therapy in residential drug or alcohol treatment programs designed to extend more than 120 days

Dept. of Labor may lower minimum wage rate for individuals whose earning capacity is impaired by age, physical or mental defect or injury and for learners and apprentices after public hearing and reasonable notice

DISTRICT OF COLUMBIA

32-1003, 1004

$7.00 (eff.1/1/2005); or $1.00 over federal minimum wage

Specific rates established by wage orders for various categories of employees

$7.50 (eff. 7/1/2008); rate to increase by $.25 every effective 7/1 through 2010.

70% of minimum wage for up to six months for learners; workers with disabilities if employer issued special certificate; student workers for length of time receiving course credit; minors may receive $.50 less than minimum wage

Director may issue special certificate for lower wages for individuals with disabilities due to age for a period not longer than 1 yr.; director may issue special certificate for learners or apprentices for lower wages for a time period fixed by the director

less than 20 yrs., $4.25 first 90 days; director may set a lower wage for apprentices, learners, and individuals with physical or mental disabilities who are unable to meet normal production standards; less than 18, 85% of minimum wage

90% of the statutory minimum for learners and apprentices. Commissioner may establish rate at least 85% of minimum wage for those unemployed at least 15 weeks or in seasonal, recreational or food establishments

$5.15; the Commissioner of Labor may adopt standards for rates of minimum wage for each occupation in the state

Student learners enrolled in vocational school may earn 85% of min. wage with commissioner approval. The Commissioner may issue permits to individuals to earn less than the minimum wage set for that occupation if the person is impaired physically or mentally or if s/he is a learner or an apprentice in that occupation

$7.15 (eff. 7/1/2007 for employers with more than 10 full time employees, eff. 7/1/2008 for employers with fewer than 10)

Learners and/or apprentices; 85% of the statutory minimum for individuals whose earning capacity is impaired by physical or mental deficiency or injury may be paid less if employer issued special certificate

At rate determined by director of labor, for up to 90 days for learners; individuals whose earning capacity is impaired by physical or mental disabilities may be paid less if employer issued special certificate

Rate based on productive capacity for patients or clients of Dept. of Mental Health and Mental Retardation, individuals whose productive capacity is impaired, or individuals who receive services from the Dept.

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Minimum Wage

West's Encyclopedia of American Law
COPYRIGHT 2005 The Gale Group, Inc.

MINIMUM WAGE

The minimum hourly rate of compensation for labor, as established by federal statute and required of employers engaged in businesses that affect interstate commerce. Most states also have similar statutes governing minimum wages.

Along with a requirement for overtime pay and restrictions on child labor, the minimum-wage law is one of the most significant, substantive obligations created more than 50 years ago by the fair labor standards act of 1938 (FLSA) (29 U.S.C.A. §§ 201 et seq.). The FLSA culminated a long struggle for state and federal protective legislation for workers that had begun during the nineteenth century.

The original campaign for minimum-wage legislation in the United States began at the state level and resulted from growing public concern about the prevalence of sweatshops—workhouses where recent immigrants, women, and young children were paid substandard wages. Proponents of minimum-wage legislation appealed to society's sense of obligation to act through its elected officials to ensure an adequate standard of living for all working citizens.

In 1912, Massachusetts, an industrial state, was the first state to enact minimum-wage legislation. The momentum continued, and by 1920 13 states, Puerto Rico, and the District of Columbia had enacted minimum-wage programs. The Great Depression moved even more states to enact protective minimum-wage legislation, and by 1938 25 states had some form of minimum-wage law. In creating minimum wage legislation, the states generally used three minimum wage models. The Massachusetts model established a wage commission that recommended voluntary minimum-wage rates based on what commission members determined was the best combination of a "living wage" for employees and the "financial condition" of the employer's business. The next model established a similar wage commission but disregarded the financial conditions of the employer, made the minimum wage compulsory, and established sanctions for non-compliance. The third law, the Utah model, established a flat rate of minimum compensation for all covered workers.

Despite the success of state legislatures in creating minimum-wage laws, state supreme courts and, ultimately, the U.S. Supreme Court rejected as unconstitutional any legislation that interfered with an employer's freedom to contract with employees over wages.

During his second administration, President Roosevelt worked with members of Congress to create a modified version of the labor provisions of the NIRA, and in 1937 the FLSA was introduced. Although national business lobbies and agricultural interests vigorously fought the proposed legislation—even organized labor did not support it—Congress passed the FLSA, and it was signed into law on June 25, 1938. Referring to the FLSA the night before signing the bill into law, President Roosevelt declared, "Except perhaps for the social security act, it is the most far-reaching, the most far-sighted program for the benefit of workers ever adopted." In a landmark decision in 1941 (United States v. Darby, 312 U.S. 100, 61 S. Ct. 451, 85 L. Ed. 609), the U.S. Supreme Court found the FLSA constitutional:

[I]t is no longer open to question that the fixing of a minimum wage is within the legislative power and the bare fact of its exercise is not a denial of due process under the Fifth more than under the Fourteenth Amendment.

The minimum-wage law has evolved significantly since the Court declared it constitutionally sound in United States v. Darby. The federal minimum wage remains the same until Congress passes a bill to raise it and the president signs the bill into law. The minimum wage started at 25¢ per hour, and Congress has increased it 18 times. Since the law was enacted, increases to the minimum wage have been signed into law by Presidents harry s. truman, dwight d. eisenhower, john f. kennedy, lyndon b. johnson, richard m. nixon, jimmy carter, george h. w. bush, and bill clinton. The increases in the minimum wage have been sporadic. For example, the wage rose five times in the inflationary 1970s but was unchanged for the last nine years of the 1980s. In 1989, the FLSA was amended to raise the minimum wage in two steps: from $3.35 to $3.80 per hour on April 1, 1990, and from $3.80 to $4.25 per hour on April 1, 1991.

Every time Congress considers legislation to increase the minimum wage, it must ponder what constitutes a living wage—a wage that is sufficient to provide a worker with food, clothing, and shelter. Along those lines, the congressional research service estimated that the minimum wage would have to rise to $6.75 per hour in 1996 to equal the purchasing power that it represented in 1978.

The minimum wage is the most direct and definitive measure to guarantee workers a living wage, but the FLSA (and thus its minimum-wage provisions) does not protect all employees. In 1988, of the approximately 110 million wage and salary earners in the United States, the FLSA did not cover about eight million workers because of coverage limits, nor another 28 million workers because of exemptions.

The minimum-wage law can be enforced by employees themselves, by the secretary of labor, or by the attorney general. Under section 216(b) of the FLSA, employees can file suit in federal or state court to enforce their rights to minimum wages and overtime compensation. Employees also can seek redress if employers retaliate against them for trying to enforce their rights under the FLSA. The secretary of labor can enforce the act on behalf of employees under sections 216(c) and 217 by either filing a wage suit on behalf of the employees or by seeking an injunction.

If a suit by either the employees or the secretary of labor is successful, the FLSA authorizes recovery of any unpaid minimum wages and/or overtime compensation; with some exceptions, the injured party may be able to recover an equal amount in liquidated damages, as well. In addition, employees who win FLSA suits may be awarded attorneys' fees. For repeated or willful violations of the minimum-wage provisions, the secretary is authorized to assess civil penalties, subject to administrative review, of up to $1,000 per violation (29 U.S.C.A. § 217(e)).

Finally, the attorney general has the authority to file criminal actions for FLSA violations, although this authority has rarely been used.

Although the FLSA is the most significant federal wage statute, a number of other laws impose minimum-wage obligations on entities that perform work for the federal government. For example, the davis-bacon act (40 U.S.C.A. §§ 276a–276a–5) applies to contracts in excess of $2,000 to work on federal buildings or other

public works; the Walsh-Healey Act (41 U.S.C.A. §§ 35–45) applies to employers that provide materials, supplies, and equipment to the United States under contracts exceeding $10,000; and the Ser vice Contract Act (41 U.S.C.A. §§ 351–358) applies to contracts in excess of $2,500 to provide services to the federal government. These statutes all require contracting entities to pay workers the prevailing wage in the locality.

As of 2003, the federal minimum wage has remained at $5.15 per hour for non-exempt employees. However, in 11 states, particularly those in northwestern and northeastern parts of the United States, the state minimum wage is higher than that of the federal government. Under the FLSA, if a state's minimum wage is higher, then that rate applies to employees working in that state.

The law in a few states still provides a minimum wage that is lower than the federal rate, although the latter continues to apply. Rates in American Samoa are established by a special industry committee, which determines rates for particular industries, rather than all covered employees. Like the states, an employer in American Samoa may choose to set rates at a higher level than the standard set by the committee.

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Minimum Wage

Minimum Wage

Historically, the idea of a minimum wage was to allow a full-time worker to earn enough to buy the basic necessities of life. Following the Great Depression of the 1930s and World War II, watershed legislation established minimum wages around the world, most notably the Fair Labor Standards Act (FALSA) of 1938 in the United States and the Wage Council Act of 1945 in the United Kingdom. FALSA, for instance, established a minimum wage of 25 cents per hour when it was formed; that became $5.85 in 2007, and will increase to $7.25 by 2009. The value of this minimum, however, declines over time due to inflation or productivity growth. The problem with the minimum wage is its interference with the labor-market mechanism, creating ambiguous influences on employers, workers, and teenagers (and even more so on nonwhite teenagers) for whom the market-clearing wage is lower than the minimum wage. In the case of extreme poverty, the argument that policy authorities should pass a legal minimum wage through legislation is not in dispute, but disagreement over a minimum wage abounds in the areas of efficient allocation of resources, full employment, effect on income, and alternative ways to combat poverty (Stigler 1946).

Economists study the effect of minimum wages relative to the market equilibrium wages. If the demand for labor, Nd, is not equal to the supply of labor, Ns, then wages change. At equilibrium, the change in the wage rates, w, over time, t, is dw /dt = f (Nd–Ns ) = 0. One implication of the equilibrium is that a laborer is paid a wage, w, equal to the marginal product of labor (MPL). If a minimum wage is binding, such as for the unskilled, young, less educated, and part-time workers, then the minimum wage would exceed the equilibrium wage, creating unemployment. The unemployed may transfer to industries that are not covered by the minimum wage, thus decreasing wage and productivity there. One possibility is that employers may then substitute more automation, or skilled labor for low-skilled labor as wages increase. Another factor is that competition between the covered and the uncovered sectors of the labor market tends to equilibrate the wages between the two sectors. Thus, the MPL of workers still employed in the covered industry will tend to rise to where w = MPL (Hicks 1948, p. 179). As Martin Bronfenbrenner asserts: “If they were better fed and clothed and housed, and better cheered as well, by higher wages, their physical efficiency might rise in the same proportion as the wage rate” (Bronfenbrenner 1943, p. 82).

Economists emphasize empirical work to assess the net possible effect of minimum wages. Several studies by David Card and Alan Krueger held that minimum wages increase the employment in fast-food firms such as Burger King, KFC, Roy Rogers, and Wendy’s. At the firm level, Card and Krueger (1994) studied the increase in minimum wages in New Jersey, the highest minimum wage in the nation as of April 1, 1992, against no change in the minimum wage in Pennsylvania. They found that employment increased in New Jersey by 0.6 workers, and declined in Pennsylvania by 2.1 workers, a difference-indifferences of 2.7 workers. Similar findings were made for firm-level data in Texas, and for state data in California (Card and Krueger 1995). An attempt by David Neumark and William Wascher (2000) to replicate the Card and Krueger finding used employment data reported by establishments rather than survey data. They found that the job gain in New Jersey could be zero or slightly negative. The technology of the fast-food firms suggests that employers may need a fixed number of employees per grill or cash register, and therefore will not reduce employment when minimum wages increase, but that they may be discouraged from opening new franchises, thus lowering potential employment.

The analysis of the amount of the unemployment can be stated in elasticity of demand terms. If the elasticity is less than one, increase in wages will increase payroll, enhancing benefits to workers. The elasticity of–1 is the standard labor market assumption, which leads to the expectation that unemployment will fall in equal proportion to wage increases. Earlier empirical studies by Charles Brown, Curtis Gilroy, and Andrew Kohen (1982; 1983) indicated that the effect of minimum wages on employment was slightly negative or insignificant, indicating an elasticity of demand close to zero.

In the Keynesian world, “the customary treatment of involuntary unemployment and unemployment equilibrium frequently is based upon rigidity of money wage rate” (Darity and Horn 1983, p. 725). The post-Keynesians are well known for defending the wage-rigidity assumption. John Maynard Keynes’s (1973, p. 54) correspondence with the classical economist Arthur Cecil Pigou revealed a rigid labor supply curve, indicating rigid wages for some level of employment. Keynes, however, eased up on the wage-rigidity assumption in chapter 19 of his General Theory of Employment, Interest, and Money (1936). According to Axel Leijonhufvud (1968, p. 37) the assumption of a minimum wage is maintained by Keynesians, who assume competitive conditions make wage rigidity into a special case for this model. Don Patinkin (1948, p. 545) argued that rigidity in the Keynesian system is possible under static modeling of Keynesian economics, but rigidity is not an essential Keynesian element in a more dynamic setting.

Modern macroeconomic discussion involves models dealing with wage-setting, where wages are set as a markup on expected price, and with price-setting, where prices are set as a markup on expected wages. Unemployment then depends on the solution of the joint equations Price Setter: p–we = β0–β1u, (β1≥ 0), and Wage Setter: we–p = γ0–γ1u, (γ1 > 0), where w is money wage, u is unemployment, p is price, e is expected, and the Greek letters are parameters to be estimated (Layard, Neckell, and Jackman 1994, pp. 19–20). When price and wage expectations materialize, real wages can be analyzed against employment. Any factors that contribute to wage push, γ0, such as the minimum wage, raise the unemployment rate.

Neumark, David, and William Wascher. 2000. Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania, Comment. American Economic Review 90 (December): 1362–1269.

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Minimum Wage

Encyclopedia of Small Business
COPYRIGHT 2007 Thomson Gale

Minimum Wage

The Fair Labor Standards Act of 1938 (FLSA) is in a sense the basic law controlling employment and compensation issues in the United States. FLSA mandates that a minimum wage be paid, but the act classifies employees into two broad classes: those who are covered by the law because they are paid by the hour and those who are exempted because they are paid a salary. From this provision of the law we have the concept of "exempt" and "non-exempt" employees. All matters pertaining to the minimum wage are applicable only to "non-exempt" employees, i.e. those covered by the legislation. In addition to the federal minimum wage, state minimum wage rates are also in place.

RATES AND COVERAGE

The last upward revision of the federal rate took place in October 1996 as part of the Small Business Job Protection Act (SBJA) of 1996. The act increased the rate from $4.75 an hour to $5.15 per hour. The rate has not changed since. In early 2006, six states (Alabama, Arizona, Louisiana, Mississippi, South Carolina, and Tennessee) had no minimum wage. Fifteen states had higher minimum wages than the U.S. as a whole: Alaska, California, Connecticut, Delaware, Florida, Hawaii, Illinois, Maine, Massachusetts, Minnesota, New Jersey, New York, Oregon, Washington, and Wisconsin. The highest wage was in Oregon, $7.63 an hour; in 2006 Connecticut had a $7.40 per hour minimum wage to be raised to $7.65 in 2007. The rest of the states had the same minimum wage as the national rate. Under the federal rules, a non-exempt worker is entitled to receive the highest minimum wage available in the place where he or she works. Changes in state law are monitored by the U.S. Department of Labor and may be consulted at http://www.dol.gov/esa/minwage/america.htm.

Exemptions

Estimates of the number of people earning the minimum wage are difficult to establish in part because exemptions to the law exist for certain classes of worker—some of whose earnings may actually be higher than the minimum wage although, officially, they make less. For example, family members of the employer may be paid less than the minimum wage. Also exempted are employers of the disabled if the disability affects the person's ability to work. Such individuals are often employed in sheltered workshops and environments. Full time students are not covered; students and apprentices part of whose work is learning need not be paid the minimum wage. Finally and most importantly, employees earning tips are exempted under the presumption that tips will make up the difference.

Statistics

Reporting on data for 2004 from the Current Population Survey, the Bureau of Labor Statistics (BLS) found that 73.9 million Americans earned hourly pay, representing 59.8 percent of all workers earning wages and salaries. Of this total 520,000 earned exactly $5.15 an hour—but some 1.483 million other hourly workers reported earning less. The two categories combined (2 million) were 2.7 percent of hourly workers.

BLS pointed out that about 350,000 of those in the "under minimum" category reported earning exactly $5.00 an hour, which may have reflected mere rounding down from $5.15 by survey respondents. If so, the total number earning less would have been around 1.13 million people in 2004. The number tallies reasonably well with other BLS data which show that the largest category of those earning less than minimum wage (1.04 million individuals) worked in food preparation and serving occupations. The second largest such category were people working in sales and office occupations (104,000). Taking the "at minimum or below" category, the leading industrial category was "leisure and hospitality," employing 62 percent of all such employees. Of all those earning minimum wage or below, 51 percent were between 16 and 24 years of age, and nearly half of those were between 16 and 19. Part-time workers represented 62 percent of the total.

The data thus show that minimum wage workers are heavily skewed toward youth, part time work, and the restaurant/food, service/hotel sectors; in the aggregate they represent a small portion of the hourly work force.

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minimum wage

The Columbia Encyclopedia, 6th ed.

Copyright The Columbia University Press

minimum wage, lowest wage legally permitted in an industry or in a government or other organization. The goal in establishing minimum wages has been to assure wage earners a standard of living above the lowest permitted by health and decency. The minimum has been set by labor unions through collective bargaining, by arbitration, by board action, and, finally, by legislation. Introduced (1894) in New Zealand through compulsory arbitration, it has become part of the social legislation of many countries. Although federal minimum-wage laws were at first held unconstitutional in the United States, a strong fight by organized labor for enactment culminated in the passage (1938) of the Fair Labor Standards Act, which set minimum wages at $.25 per hour for workers engaged in interstate commerce (with some exceptions); the act also set up industry committees to recommend rates for every industry. In 1950 the minimum wage was raised to $.75 per hour. Thereafter, it was raised several times (for example, in 1956 to $1.00, in 1963 to $1.25, and in 1968 to $1.60). In 1974, Congress passed a bill providing for a gradual increase from the prevailing $1.60 per hour to $2.30 per hour by 1976. The bill also extended minimum-wage rules to some 8 million workers not previously covered, including state and local government employees, most domestic workers, and some employees of chain stores. Additional increases raised the minimum wage to $3.10 per hour (1980), $4.25 (1991), and $5.15 (1997). Legislation passed in 2007 raised the minimum wage, in three stages, to $7.25 in 2009. Since 1989 businesses earning less than $500,000 annually have not been subject to minimum-wage rules. A number of states have minimun wages that are higher than the federal minimum wage. See also wages.

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